Norfolk Southern Sees Coal Slump Through 2013 First Half

Oct. 23 (Bloomberg) -- Norfolk Southern Corp., the railroad
that cut its third-quarter forecast amid a decline in coal
shipments, said the slump in those deliveries will persist
through 2013’s first half.

The drop in coal, the carrier’s biggest cargo category,
will run “largely unabated” into next year, Chief Executive
Officer Charles “Wick” Moorman said on a conference call. The
shares fell 2.3 percent to $64.50 at 5:58 p.m. after regular New
York trading.

Coal volumes fell 14 percent last quarter at the Norfolk,
Virginia-based railroad. Norfolk Southern garnered about 31
percent of 2011 revenue from those shipments, a business being
squeezed at all the major carriers as electric utilities switch
to burning cheaper natural gas instead of train-hauled coal.

“The tough time is more economically driven and commodity
specific than anything else,” Jason Seidl, an analyst at
Dahlman Rose & Co. in New York, said in an interview. “You’ve
got to play the hand you’re dealt.”

Merchandise shipments fell 1 percent, part of a 1 percent
decrease in third-quarter volumes, Norfolk Southern said. The
second-largest U.S. eastern railroad pared its forecast on Sept.
19, helping trigger the biggest plunge in the stock in more than
three years and dragging down the rest of the North American
industry on concern that the economic recovery is losing steam.

Profit of $1.24 a share compared with the revised average
estimate of $1.23 from 27 analysts surveyed by Bloomberg, and
was within the range of $1.18 to $1.25 in last month’s forecast.
Net income fell 27 percent to $402 million from $554 million, or
$1.59 a share, a year earlier.

Sales Drop

Revenue fell 6.8 percent to $2.69 billion, Norfolk Southern
said. That trailed the average estimate from analysts of $2.73
billion. Norfolk Southern said agricultural carloads were
unchanged from a year earlier after the drought that scorched
U.S. crops.

Fourth-quarter coal shipments probably will be similar to
September’s, Chief Marketing Officer Donald Seale said on the
call. Coal deliveries fell 15 percent that month, the railroad
said.

“Nothing is broken, but without a return to demand in coal
and with the sluggish economic environment, there’s nothing to
step up and fill the void that coal left,” said John Mims, an
FBR Capital Markets analyst in Arlington, Virginia. He rates
Norfolk Southern as market perform, while Seidl has an
equivalent hold rating on the stock.

Norfolk Southern’s coal decline echoed the drop of 16
percent at CSX Corp., the biggest railroad in the eastern U.S.,
and 12 percent at Union Pacific Corp., the largest North
American carrier. Freight volumes fell at all three companies.